Be Vigilant To Risks In Microfinance And Consumer Credit: CEO, BCT Digital
With regards to RBI’s Financial Stability Report, released today, Jaya Vaidhyanathan, CEO, BCT Digital, shares important insights on banking sector:
The RBI highlights the significant improvement in the banking sector's health, with the Gross Non-Performing Assets (GNPA) ratio of Scheduled Commercial Banks (SCBs) declining to a multi-year low of 3.6% as of September 2024, compared to 5.0% in March 2023. This reduction underscores enhanced credit discipline, robust monitoring, and effective recovery mechanisms. The Provision Coverage Ratio (PCR), a critical measure of risk resilience, stood at an impressive 75%, further strengthening banks' capacity to manage potential credit shocks.
On the fraud management front, regulatory guidelines have focused on enhancing Early Warning Systems (EWS) and leveraging technology for fraud detection. Cybersecurity measures and stronger digital payment controls have been instituted to mitigate risks in an increasingly digital banking ecosystem.
The sector's resilience was reaffirmed through stress tests, indicating that even under severe macroeconomic shocks, the Capital to Risk-Weighted Assets Ratio (CRAR) of SCBs remains well above the regulatory minimum of 9%, signaling the robustness of the sector's financial buffers.
As India progresses into 2025, the banking sector is set to sustain its momentum of stability and growth. The GNPA ratio is expected to stabilize below 3.5%, supported by strong asset quality, stringent risk management practices, and favorable macroeconomic conditions. Credit expansion in high-growth sectors and improving consumer sentiment are likely to bolster profitability further.
However, the sector must remain vigilant to risks in microfinance and consumer credit, which make up 15% of SCB loans, with delinquency rates reaching 8.2% in small personal loans and 3.8%-4.2% in microfinance. Banking fraud surged to ₹21,367 crore in H1 FY25, with internet and card frauds accounting for 44.7% of the amount and 85.3% of cases. These trends emphasize the urgent need for advanced fraud detection technologies and stronger cybersecurity to address evolving risks.
